Historic Tax Credits New Money for Your Old Property

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1 Historic Tax Credits New Money for Your Old Property Art Schuldt, Housing Solutions Alliance, LLC Micah Strange, Housing Solutions Alliance, LLC Cindy Hamilton, Heritage Consulting Group John Bowman, Foss and Company Texas Housing Association Annual Conference August 17, 2016

2 Presentation New Money for your Old Property Challenges Faced by PHAs The Redevelopment Tool Kit What are Historic Tax Credits-Heritage How are HTCs calculated?-foss & Company Case Study 2

3 Challenges Faced by PHAs Inconsistent Congressional Budgets Limited Capital Funds $26 Billion Backlog of Capital Repairs HUD Restrictions REAC Inspections 3

4 Challenges Faced by PHAs PH Operating Funds: Formula Eligibility vs Appropriations $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $ Formula Appropriation 4

5 Challenges Faced by PHAs PH Capital Funds: Capital Needs vs Appropriations $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $ Appropriations Needs 5

6 Questions worth asking If HUD isn t providing me the funding to strengthen and expand my housing, how will I achieve my goals? How long can I keep the status quo? I see what some other agencies have done but can it work for me? 6

7 Modernization Tool Kit Programs Capital Funds Mixed-Finance Low Income Housing Tax Credit - 4% and 9% Historic Tax Credits RAD 7

8 Modernization Tool Kit Capital Fund Program PHAs are having to divert funds to Operations Planning for CFP requires piece-meal approach to modernization Not really modernization-but Band-Aid solution Modernization is Redevelopment with proper tools and planning However-can be effective leveraging source with a mixed-finance transaction 8

9 Modernization Tool Kit Mixed-Finance Outgrowth of HOPE VI Program Financing of redevelopment from both public and private sources, including LIHTC Integrate both public & non-public housing (mixed-income) Permits ownership of public housing by an entity other than a PHA (can be an affiliate of PHA) PHA may loan or grants it Capital Funds 9

10 Modernization Tool Kit Mixed-Finance-Benefits Brings additional resources to the project Increases opportunities for the physical, social, and economic integration of public housing Stimulates neighborhood revitalization PHAs work with experienced partners Generate additional revenue stream for PHA 10

11 Modernization Tool Kit LIHTC Created in 1986, is most significant federal financing tool for affordable housing development producing more than 1.5 million units nationwide Corporate tax advantage brings in private investment-can fund up to 85% of total cost of redevelopment Administered in Texas by TDHCA Income restrictions similar to public housing 15-year compliance period 9% versus 4% tax credits (bonds) 11

12 Modernization Tool Kit LIHTC-Benefits Private money, i.e.: doesn t trigger as many strings; Can fund most project uses: hard costs, soft costs, reserves, etc; Developer fees paid (15% or more of total development costs) Equity funds the PHA lease fee TDHCA has At-Risk set-aside so PHAs don t have to compete against high scoring, prime areas 12

13 Historic Credits State credit passed last year effective January 1, Credit is 25% of eligible basis on top of Federal 20% credit. 45% total credit on rehab. Buildings need to be over 50 years old and have architectural significance. Can be used together with LIHTC on modernization deals. 13

14 Ownership Structure Housing Authority Long Term Ground Lease Tax Credit Partnership Housing Authority Affiliate (General Partner) 0.01% Developer (Special Limited Partner) 0.01% Tax Credit Investor (Limited Partner) 99.98% 14

15 Actual Case Study Groesbeck, TX Housing Authority- Overview Liberty Village/Liberty Square are two public housing properties owned by Groesbeck Housing Authority. The 80 units were constructed in two phases in 1964 and GHA applied for and received both a RAD CHAP award in 2014 and an award of LIHTC from TDHCA in Rehabilitation is extensive and include new kitchens, reconfiguration accessibility, washers/dryers in every unit, countertops, laminate flooring, windows, doors, new plumbing and electrical fixtures, heat pump water heaters, new HVAC and new architectural grade roofing. The rehabilitation meets the National Green Building Standards. 15

16 Actual Case Study 16

17 Liberty Square/Liberty Village Sources and Uses Uses Land & Acquisition 2,445,000 Construction Costs 5,320,000 Financing Costs 372,700 Other Soft Costs 806,857 Reserves 346,734 Developer Fees 1,027,000 Total Uses $10,318,291 Sources Permanent Loan 1,350,000 Investor Equity 6,606,203 GHA Soft Loan 787,723 GHA Reserves & CFP 234,265 AHP Grant 500,000 State Historic Tax Credits ** 700,000 Total Sources $10,318,291 ** Note: $3.43 million in HTC basis 17

18 Actual Case Study Liberty Village/Liberty Square- Key benefits $1,657,277 in cash acquisition lease fee $342,621 in developer fee $380,000 in cash flow over 15 years GHA management Full ownership of project at end of compliance period $5,320,000 in rehabilitation 18

19 Art Schuldt, Jr. Micah Strange Housing Solutions Alliance Housing Solutions Alliance

Emmanuel Arellano Director Portfolio Management. Hanan Bowman Asset Strategy Manager Portfolio Management

Portfolio Management / FY 2017 (July 1, 2016 - June 30, 2017) Capital Expenditures Plan SDHC Board of Commissioners May 6, 2016 Emmanuel Arellano Director Portfolio Management Hanan Bowman Asset Strategy